Another tech meltdown for market

Dow plunges below 10K, Nasdaq down over 3%

By

JulieRannazzisi

NEW YORK (CBS.MW) -- Stocks got sacked for a fourth consecutive session Thursday, sending the Dow Industrials below the 10,000 mark for the first time since early April. The blue-chip gauge has fallen over 100 points in each of the past three trading sessions.

The Nasdaq also plumbed four-and-a-half-month lows as Sun Microsystems took a dive on the back of negative comments. Also keeping sentiment dour was evidence of anemic consumer spending in July.

"This is a very nasty bear market. We may get an oversold bounce in the next days but the real test will come in September," said Joe Liro, equity strategist at Stone & McCarthy Research Associates, referring to the third-quarter pre-announcement season.

"This may be the capitulation we were waiting for. Volume, while thin, had picked up [compared with] previous sessions," remarked Scott Curtis, head of U.S. equity trading at Credit Lyonnais.

Though the Dow and Nasdaq are flirting with four-month lows, there's still some wiggle room from the indexes' lows of the year: around 800 points for the Dow and about 170 points for the Nasdaq.

The Dow Jones Industrial Average
DJIA, +0.08%
declined 171.32 points, or 1.7 percent, to 9,919.58 after falling as much as 220 points at its intraday nadir. The Dow's losers included Microsoft, Intel, IBM, Hewlett-Packard, General Motors, American Express, Citigroup and Wal-Mart. Among the few winners were Coca-Cola, Philip Morris, Procter & Gamble and McDonald's.

"The major indexes continue to close in on their April lows in a slow, grinding fashion. While the indexes are very oversold and could rally in the short term, we still expect a test of the recent lows of 1,103 on the S&P and 1,639 on Nasdaq (the 2001 closing low set on April 4) sometime during the weak seasonal period of September and October," commented the S&P Investment Policy Committee in a research note.

"Gloom is typically pervasive at market bottoms. Investors are waiting for a signal to add to holdings [with] earnings worries and skepticism about a U.S. economic recovery pushing investors into consumer staples and health care sectors," S&P said.

Curtis notes that the market's backdrop is good, with seven Fed rate cuts in the pike and the ECB chiming in with a rate cut of its own on Thursday. "But there's absolutely no leadership. People are looking for safe havens and are finding relief in cash and short-term fixed-income securities."

Within the tech group, hardware, networking, fiber-optic and Internet issues got the biggest declines. In the broad market, the largest losses emerged in the oil service, retail, utility, natural gas, cyclical and chemical issues. Only insurance, tobacco and gold shares squeaked out gains. Check market stats and latest sector performance.

Liro said he doesn't see a reason to get involved in the market until the actual third-quarter results are posted in October. "The warnings in September will still be ugly. The bright spot is that there will be less of them compared with the second quarter," he noted.

The strategist believes the market is less worrisome than in April, however -- when the Nasdaq reached its low of the year -- because of the light volume, which tends to accentuate prices swings.

Volume checked in at 1.16 billion on the NYSE and at 1.74 billion on the Nasdaq Stock Market. Market breadth was sloppy, with losers defeating winners by 20 to 11 on the NYSE and by 24 to 12 on the Nasdaq.

"The market continues its fall, but the force behind the move is relatively tame, with low volume and advance-decline readings that are only modestly negative. The action in the indices gives the impression that all stocks are down, but the more serious moves to the downside are still quite concentrated," observed Robert Dickey, technical strategist at Dain Rauscher.

"Most surveys have shown that many people plan to either pay down debt or save the rebate rather than spend it. July's savings rate bounce to 2.5 percent would support that view. Rebate checks were only sent out late in the month, which no doubt skewed the data toward savings," said David Orr, chief economist at First Union.

Joel Naroff, chief economist at Naroff Economic Advisors, said that July consumption wasn't great, but good enough. "Third quarter consumption is on track to hit 3 percent and it could be quite a bit higher than that. We may have escaped the worst part of the slowdown and going forward things could get a lot better."

Another tech wreck

Sun Microsystems
SUNW, -5.45%
tumbled 17.6 percent to a fresh 2 1/2 year low and was the main culprit behind the Nasdaq's dour tone. After the close Wednesday, the company informed investors during a conference call that soggy sales in Europe and Japan would likely result in a loss in its fiscal first quarter, though a precise figure wasn't given. Thomson Financial/First Call had expected earnings-per-share of 2 cents for the quarter. Read story.

Internet issues also slumped amid a sell-off in shares of AOL Time Warner, which lost 6.5 percent.

Meanwhile, Microsoft's 5.5-percent slide hurt the software sector. The European Union is opening a new antitrust probe against the software colossus
MSFT, -0.71%
claiming that it's using illegal practices to dominate the market for low-end servers. See story. Oracle plunged 10.1 percent, PeopleSoft 6.6 percent and Siebel Systems 5.6 percent.

Fiber-optic issues got slammed and were among the hardest hit within the tech group. Layoff news from Corning, announced late Wednesday, was a substantial drag on the sector. The company
GLW, -0.24%
said it would slash 1,000 jobs due to a continued downturn in the telecom sector in both North America and Europe. The company added that it has seen a "sudden slowing in orders across all fiber product lines" and thus expects market growth in 2001 to be "significantly" less than its previous 15-percent outlook. Corning shares got clobbered 17.5 percent and fell to levels not seen since October 1998. Among its peers, JDS Uniphase
JDSU
got slammed almost 10 percent and slid to a low not seen since November 1998. Sycamore slumped 5.3 percent, Ciena 5.4 percent and Nortel Networks 3.8 percent.

Altera
ALTR, +1.13%
slipped 1.6 percent after telling investors it still projects a quarterly sales decline of 15 to 20 percent, in line with previous projections. See full story.

Tech Data
TECD, +0.07%
surged 15.5 percent after topping second-quarter profit expectations and raising its outlook for the third quarter late Wednesday. See full story.

Broad market moves

Charles Schwab
SC.H, -17.65%
shed 1.2 percent after announcing additional job cuts due to prevailing business conditions. The discount broker said clients have pared back investing activity significantly and it's thus looking to eliminate 2,000 to 2,400 full-time employees from its July headcount, which will result in a pre-tax charge of about $225 million to be recognized over the rest of 2001. See full story. Other decliners in the brokerage group included Merrill Lynch, off 2.7 percent, Bear Stearns, down 2.4 percent, and Morgan Stanley Dean Witter, off 3 percent.

Dow stock Walt Disney fell 3.1 percent after rating agency Fitch said it expects to downgrade the senior unsecured debt rating of the entertainment giant
DIS, +1.28%
to "A-" from "A." Fitch said the expected rating chance reflects the increased leverage associated with the acquisition of Fox Family Worldwide and the expectation that the company will have limited ability over the intermediate term to reestablish credit protection measures consistent with an "A" level rating.

Dillard's
DDS, -0.33%
was a big downside mover among retail stocks, stumbling 9.5 percent after reporting a much wider-than-expected loss in the second quarter. Amid the disappointing results, Dillard's said it's seeing more positive trends in sales since July and was able to reduce both inventory and debt during the quarter. See full story.

Treasury focus

Long-dated issues retreated modestly after two days of smashing gains while the 2-year note found safe-haven buyers.

In other economic news, weekly initial claims fell 1,000 to 399,000 vs. expectations for a 393,000 reading. See full story.

In the currency sector, the dollar lost 0.6 percent to 119.37 yen while the euro climbed 0.9 percent to 91.62 cents.

The euro warmed up to news that the European Central Bank cut short-term rates by 1/4 percentage point to 4.25 percent nine days after the Federal Reserve moved to lower rates by the same amount. Economists were split over whether the ECB would lower rates, though the central bank was under intense pressure to ease amid a global slowdown that appears to be spreading and becoming more pronounced. Thursday's ease marked the ECB's second this year. See full story

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